3. Measure and report on sustainability
Reporting will also play a crucial role. On the eve of last week’s summit, the European Commission adopted a Corporate Sustainability Reporting Directive (CSRD) proposal, which would more than triple the number of companies in the EU required to report on sustainability data. And President Biden’s US International Climate Finance Plan signals the Treasury and US regulatory bodies will focus on improving reporting on climate-related risks among other climate risk objectives.
Even without such regulation in place, investors are pushing companies to report more ESG metrics. In the 2020 EY Climate Change and Sustainability Services (CCaSS) Institutional Investor survey, 72% of investors said they conduct a structured, methodical evaluation of nonfinancial disclosures that relate to the environmental and social aspects of a company’s performance.
The “alphabet soup” of ESG reporting standards and metrics can be daunting to the C-suite, but efforts are underway to bring more clarity, such as the IFRS Foundation effort to accelerate standardization of these metrics. Recent conversations with our clients reveal C-suites and Boards are prioritizing sustainability reporting.
A global energy company is exploring how to make its sustainability reporting as rigorous as its financial data, as it plays a stronger role in the company’s investor narrative. And a large automobile manufacturer that’s been reporting on ESG for more than a decade is now involving the Audit Committee, Controller, Legal Counsel, and others in the C-suite in the process, cementing ESG as central to the company’s reporting.
Companies need to ask where they are in terms of reporting. What do their customers, shareholders, and other stakeholders expect? What work is needed with suppliers to improve sustainability across the value chain?